How low could the ECB’s depo rate go?

We expect the ECB t o cut its deposit rate at the September meeting by 10bp. But a deeper , or further cuts at a later stage , are clearly possible if the economy develops weaker than we expect and/or Fed actions trigger a pronounced appreciation of the euro. One obvious question to ask in this context is how much further the ECB could cut its deposit rate? The ultimate lower bound is defined by the costs of storing and insuring cash for the non-financial sector . Based on estimates of these costs , it seems safe to assume that households and companies would start to withdraw their deposits in a significant way at the latest around a level of -2%. But already prior to reaching that level, the adverse effects of lower rates may outweigh any stimulating effect . T he transmission of negative rates to the private sector depends in the end on the question to what extent negative deposit rates are passed on to the private sector and how will banks and companies react if the costs of holding deposits increase further? Recent work by the ECB suggests that banks may actually increase lending and corporates may invest more to compensate for negative rates. While there is necessarily a high degree of uncertainty , these finding suggest that the ECB will think it will have further room for rate cuts should this be deemed necessary.